Trading on the news and other events is a tried and tested trading strategy used by most professionals, and it’s something all traders should master. However, trading on the news is not necessarily as easy as you might think and there are some things that you need to be aware of and consider before getting started.
Image Source – Pexels
For example, you need to know what types of news to trade and which ones to avoid. You also need to understand the difference between a fundamental analysis and a technical analysis.
So without further ado, here is a quick guide on how to trade forex, stocks, and other instruments using news events.
A Strategy Based on Fundamental Analysis
In the world of trading, there are two types of analyses that one can use to plan and execute trades.
The first is called fundamental analysis which is based on news and company data or reports, and that is what we’ll focus on today.
The second is called technical analysis which is based purely on graphs and price movements, and we mention it briefly further down.
The idea behind trading on news events is that the price of an asset is affected by news regarding the said asset. For example, the price of a stock is connected to news and reports from the company. If the company publishes a bad quarterly report, the stock will most likely drop. On the other hand, if the company hires a new prominent CEO or publishes a great report, the stock might increase in value.
If we look at the commodity market, the price of oil is highly affected by the global oil supply. And a currency can be affected by a range of factors such as interest hikes, worker reports, other currencies, etc.
So, as mentioned, the idea of fundamental analysis is to find news and then plan your trades based on that. Naturally, like all trading strategies, there is risk involved in trading on the news, but with the right sources and a combination of other analytic strategies, it can be a winning concept.
Finding News To Trade On
For you to be able to trust the news you read, you first have to find a reliable source.
Many traders heavily rely on newspapers such as The Wall Street Journal or Bloomberg for their news. Although, we would recommend looking into finding an online broker that offers daily news updates and market calendars.
All of the leading brokers today offer some type of news updates, and one of the best ones is eToro. You can read more about eToro, their news updates, and other services in this review.
In the end, it’s up to you to decide which source you want to rely on for your news. Just make sure it’s a trustworthy and respectable source that’s not too biased and that updates regularly.
In an attempt to further explain how fundamental analysis works, we thought we’d provide a quick rundown of the other main strategy used by traders today.
A technical analysis, unlike a fundamental analysis, does not look at real-life events and news. Instead, this type of analysis is only focused on the actual price and development of an instrument’s value.
The basic idea is that history tends to repeat itself and that one can study charts and price movements in order to predict how an instrument will move.
To sum this article up, we want to clarify something. To become successful as a day trader or even a hobby trader, you will have to master more than one strategy.
Every professional trader out there uses a combination of news events as well as technical analysis to create the most accurate predictions possible.
In other words, one should always rely on at least two types of analysis in order to make the best and most successful trades possible.